September 15-16, 2020

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12 May Is your competitive edge really a wedge?

The business media has been filled with stories critical of the ethics of contemporary business executives and organizations. But, this is much less so in the academic literature. A noteworthy exception is “Beyond Selfishness” by Henry Mintzberg, Robert Simons and Kunal Basu, in the Fall 2002 issue of the Sloan Management Review (available for purchase at http://web.mit.edu/smr/issue/2002/fall/7/ ). It’s an elegantly argued essay that should be required reading on every corporate jet.
Few people have ever heard of Henry Mintzberg, but he is held in the same high esteem by academics as Peter Drucker. He and his co-authors make the case that the recent scandals and misdeeds at corporations such as Enron, Adephia, Andersen Consulting, Worldcom, etc. are symptoms of a pervasive syndrome of selfishness that has taken hold of our business institutions, our societies and our minds. They argue for a return to a balance between corporate self interest and concern for others and assert that it is the role of management to work toward restoration of the balance. Drawing on history, literature, philosophy and management thinking, they argue that this syndrome is built on a series of half-truths — or fabrications — each of which has driven a debilitating wedge into society.1. We are all in essence, economic man. Economists speak of “economic man” to represent rational beings that make all decisions and judgments based purely on monetary value and their own economic self interests. It is the conceptual justification behind the “business decision,” today’s all-purpose rationalization for everything a business does. The authors point out that this one-dimensional view of how humans behave in business has contributed to the preponderance of selfish individualism. Social glue in the form of values and engagement with society at large must exist. When businesses act purely in pursuit of their individual economic self interest, this creates a wedge of distrust with the rest of society.2. Corporations exist to maximize shareholder value. “Corporations are economic entities to be sure, but they are also social institutions that must justify their existence by their overall contribution to society. They must serve a balanced set of stakeholders – customers, employees, suppliers, and society at large – not just shareholders.” This is the kind of statement that makes many CEOs and investment analysts cringe. The authors question the slavish obsession with shareholder value and how it’s being evoked to justify all sorts of behavior on the part of companies. Shareholders put up the capital but create little of the value, yet they currently seem to enjoy total power. Shareholder value creates a wedge between those who create economic performance and those who harvest the benefits.3. Corporations require ‘heroic’ leaders. It is a misassumption that the CEO is the enterprise; that he or she alone is responsible for the entire performance of the business and that this performance can be measured and the CEO rewarded to do the bidding of the shareholders. But some CEOs have taken advantage of the situation and are paid handsomely whether they succeed or fail. Heroic leadership drives a wedge of disconnection between those at the top and everyone else. “Real leadership is often more quiet than heroic. It is committed, involved and engaged. It is about teamwork and taking the long-term perspective, building an organization slowly, carefully and collectively.”4. The effective organization is lean and mean. We come to my favorite quote of the entire article – “Slash-and-burn tactics are merely the quickest way to performance in the absence of imagination.” Management fails in its vision, strategy and tactics but workers take the fall for this failure. “Lean and mean is supposed to lead to lower costs, higher productivity, flatter and more flexible organizational structures, more empowered workers and happier customers. But instead, it often leads to burned out managers, angry workers, and quality losses in the guise of productivity gains.” Well said.5. A rising tide of prosperity lifts all boats. Growing national and global gaps between rich and poor dispel this myth. Acting in this belief drives a wedge of disparity between the beneficiaries of stock price increases and the large numbers of people disadvantaged by the behavior of businesses. “Real prosperity combines economic development with social generosity.”
The authors close by asserting that material wants, benefits for stockholders, our view of leaders, productive efficiency, economic prosperity and even selfishness should not be challenged per se but must be rejected as ends in themselves. “The calculus of glorified self-interest and the fabrications upon which it is based must be challenged.” These guys have made a wonderful start.